While BofAML's Macneil Curry remains a longer-term Treasury bear, in the near-term (and potentially medium-term) the evidence for a pause and corrective yield pull-back is too much to ignore. Given the momentum conditions, he notes, these levels are not going to give way without a fight - Treasur bears beware. He also fears a correction lower in EURUSD and USDJPY (JPY strength) but worries that gold has further to fall.
Via BofAML's Macneil Curry,
US 5s & 30s at MASSIVE, LONG TERM SUPPORT. Bears beware
We are long term Treasury bears, with 5s targeting the Feb’11 highs at 2.42%, 10s targeting 3.45%/3.50% and 30s targeting 4.23%/4.25%.
However, in the near term (and potentially medium term) the evidence for a pause and corrective yield pullback is too difficult to ignore. While momentum has not confirmed this most recent yield advance from the Oct lows, it is the SIGNIFICANT LONG TERM SUPPORT LEVELS, particularly in 5s and 30s, that have our attention. Indeed, 5s are right on 4.5yr trendline/channel support at 1.756%/1.775%, while 30s are just shy of 20 year channel support and the 100m average at 4.05%. Indeed, monthly momentum in 30s has reached oversold for the 1st time since 2000.
Given the momentum conditions, THESE LEVELS ARE NOT GOING TO GIVE WAY WITHOUT A FIGHT. TREASURY BEARS BEWARE.
Key resistance for each point on the curve is varied. For 5s, a correction could come in the form of a 1.775%/1.659% range, but if 1.659% goes, we risk a 11bp decline. In 10s, stops are likely below 2.935%, through which confirms a top and turn lower to 2.88% and below, while in The Bond bulls need a break of 3.762% to confirm a top, exposing a push to 3.563%/3.461%.
Turning to the curve (5s30s) we hold a near term neutral bias within the 230.9bps/204.9bps, preferring to fade the range extremes. However, on a long term basis, the trend is for FLATTENING, with a break of 205bps/195.1bps opening retracement support at 146bps and below.
€/$ in trouble, but $/¥ is at risk as well.
Ahead of event risk, evidence continues to build for a lower €/$. A daily close below 1.3581/1.3548 (6m trendline & 100d average) confirms a turn lower, exposing the 200d (now 1.3335) and below.
Meanwhile, we remain very cautious on $/¥, as the 3m uptrend is increasingly vulnerable to a top and reversal. The bearish daily momentum divergences and completing 5 wave advance from both Feb’12 and Oct’13 says that additional strength is limited before a top and turn.
Given the strong correlation between $/¥ and US 10yr yields; a break down in yields could be the catalyst for such a reversal. 103.74 (May’13 high) is key support. A sustained break below confirms the turn, exposing the 200d at 99.70 and likely below.
Gold remains in trouble
Despite the rally in the US $, gold has proven to be very resilient. However, stay bearish against 1251/1270. Against here, the downtrend remains on firm footing for a test and break of the Jun lows at 1180, opening LONG-TERM PIVOTAL SUPPORT BETWEEN 1127/1087